MUMBAI: In a move that could hurt consumption during the festive season, mortgages and other loans are set to become more expensive, while deposits will start yielding higher returns in a few weeks, with Reserve Bank of India Wednesday announcing a hike in key interest rates.RBI raised the repo rate by a widely expected 25 basis points to 5.5% on Wednesday, its first increase since Feb 2023, as stronger than expected growth and broader price pressures due to escalation of the West Asia conflict prompted the Monetary Policy Committee to unanimously vote for an increase and shift its stance from neutral to “calibrated tightening”.The move will raise the EMI on a Rs 1 crore loan over 15 years by around Rs 1,500 a month, or about Rs 1,471 at a base rate of 8.5%.
If EMI remains unchanged, the higher rate could extend the loan by about 5.5 to 5.9 months, equivalent to six additional instalments.Clarifying that the calibrated tightening was an indication of future actions, RBI governor Sanjay Malhotra said, “Given the current conditions, rate cuts are off the table in the near term and policy action ahead can only be a rate hike or a pause, depending on the evolving conditions and the outlook.”
RBI raises FY27 growth and inflation projections
According to SBI chairman CS Setty, the repo rate hike is both a response to inflation and a recognition of the resilience of the Indian economy.“The upward revision in the growth outlook is reassuring, even as geopolitical developments and supply-side pressures including elevated energy prices warrant continued close monitoring,” he said.According to SBI group chief economist Soumya Kanti Ghosh, with inflation currently expected to peak at around 6.8% in Nov 2026, the corresponding peak repo rate could be around 6% in Dec. So, brace for further increase in EMIs. One of the drivers of inflation is crude oil, which RBI estimates will now average $95 a barrel for FY27, up $5 from its earlier estimate after global prices increased from $82 a barrel in July to around $116 per barrel in Sept.While banks are expected to take a few weeks to revise their fixed deposit rates as they are flush with funds from the special NRI deposit scheme, Bajaj Finance revised its FD rates by up to 40 basis points, taking rates for senior citizens up to 8.15%.RBI raised its 2026-27 real GDP growth forecast by 40 basis points from the Aug review to 7.1%, driven largely by a sharp revision in Q2 growth to 7.2% from 6.4%. The Q3 forecast was also raised, while the Q4 projection was unchanged.It also raised this year’s inflation forecast from 5% to 5.2%, with all quarterly forecasts revised higher; Q1 FY28 saw the biggest increase, at 30 basis points to 5.6%. Core inflation was also raised marginally to 4.4%. The MPC expects inflation to average 5.8% over the next three quarters.
